Bankruptcy is a court supervised proceeding which is intended to give debtors a break from creditors’ collection activities while the court tries to determine if there is any way possible to try and get some money to creditors in exchange for debts being discharged (“going away”).
You see, the goal under any chapter of bankruptcy (at least as far as Congress is concerned) is to try and generate funds to give to the creditors and in exchange for that attempt the debtor’s debts will be discharged [except for several exceptions including but not limited to certain taxes, student loans, domestic support obligations, criminal fines and restitution, and personal injury automobile accidents involving drugs or alcohol].
In most cases, creditors do not get anything at all, and that is really why you would need legal advice to help make such a determination. The two chapters of the bankruptcy code that deal with consumer debts are Chapters 7 and 13. The biggest difference between a Chapter 7 and a Chapter 13 is how the court looks for money to give to creditors.
Chapter 7 Bankruptcy
A Chapter 7 can be thought of as a “liquidation” bankruptcy. The court will value the debtor’s property and determine whether property may be liquidated and funds given to the unsecured creditors. Each state allows debtors to keep property necessary for the “fresh start.” The property that may be kept (which is exempt from liquidation) is called an exemption.
In Indiana, the major exemptions are as follows:
- Retirement (in a qualified retirement account) is fully exempt;
- Real or personal property constituting the debtor’s primary residence is exempt up to $17,600.00 in equity ($35,200.00 for a married couple);
- Personal property valued up to $9,350.00 is exempt ($18,700.00 for a married couple); and
- Intangible assets up $350.00 are exempt ($700.00 for a married couple).
While the majority of cases are “no asset” cases (meaning there is nothing to give creditors), debtors must honestly and fairly list all assets and cooperate with the court in liquidation of assets in order to receive a Chapter 7 bankruptcy discharge.
The entire Chapter 7 bankruptcy takes approximately 120 days from start to finish and is a fairly simply way to obtain a fresh start.
Chapter 13 Bankruptcy
There are many reasons to file a Chapter 13, but only two reasons why a debtor would have to file Chapter 13. The first is that a debtor must file a Chapter 13 if the debtor has filed a Chapter 7 and received a discharge in the prior eight (8) years.
Secondly, a debtor must file a Chapter 13 id the debtor earns too much money and would have some “disposable income” available to pay to the court each month. In a Chapter 13 a debtor is basically saying, “I do not earn enough money to pay off all these debts, but I am working and making a good living, so I might be able to pay off some of the debt over a period of time.”
An attorney would be needed to determine whether you must be in a Chapter 13 and how much the court will require that you pay back to creditors.